Carbon Trading- A new Avenue

By Krutika Kshirsagar

Who had ever imagined that we could create a commodity out of effluvium? But, when nations under the Kyoto Protocol accepted targets for limiting and eventually reducing greenhouse gas emissions, it was indeed a step in the positive direction. The objective of this protocol is to arrest global climate change. The countries that have emissions of units of greenhouse gases in excess, can sell these units to those countries that are over their targets. Thus, a new article of trade was created in the form of emission reductions.

The agreement states that commercial entities emitting above the permitted brink of carbon dioxide are required to cut down their emissions to prescribed limits, else they should buy carbon credits certificates. The carbons credits can be transacted in the market, else a charge has to be paid for the emission, referred to as the carbon tax.

The benefit of these to the quintessential developing countries like India and China was the Clean Development Mechanism (CDM). In simpler terms, the CDM allows emission-reduction projects in developing countries to earn certified emission reduction (CER) credits, each equivalent to one tonne of CO2. These CERs can be traded and sold, and used by industrialized countries to a meet a part of their emission reduction targets under the Kyoto Protocol. But off-late, this mechanism is in jeopardy. CERs have declined substantially in value over the last year. The recession, the Eurozone crisis, other economic factors across the globe, capacious and booming economies like United States and India not participating in the Kyoto Protocol’s carbon reducing policies, implies that the carbon market is losing its sheen.

Europe is the only market worth its size but  industrial activity there has declined and thus fewer companies need to top up their carbon quotas. Taken the fact that there are CDM projects registered in 83 developing countries that have delivered 110,000 MW of renewable energy, the decline tends to create concern. To tackle the situation, the European Parliament proposed to temporarily withhold millions of carbon emission allowances due in the market between 2013-15. The European Union Emissions Trading Scheme (EU ETS) is the longest running and largest carbon trading scheme. The price of carbon has plummeted last year because of an oversupply of allowances brought by the Eurozone crisis and a drastic decline in production. After series of deliberations, the ‘backloading’ has been approved, which we can believe will be sufficient to drive the prices up. However, this is a short-term fixture that will delay the release of permits. How effective will this result be for the industry in the EU nations is yet to be seen. It is important that this step is supported by the four major EU nations- UK, France, Germany and Italy for the restoration of investor confidence in the carbon markets.

The primary purpose of the Protocol was to make developed countries pay for their ways with emissions while simultaneously rewarding countries that put up a good show. This system is perceptibly a way to transfer wealth from industrialised nations to the developing ones, but the problems faced by one of the abounding economies leaves the others pondering over the feasibility and workability of this system. Tapping the carbon market is indeed a task.
A green economy is music to the ears for everyone. But translating the idea into reality is a Herculean task. It requires technological and managerial innovation.

It depends on the kind of life we wish for and  efforts made in this direction. It is the way we organize our businesses, manoeuvre our lives, move our goods and structure our policies. Carbon trading in India has been looked at sceptically and its success been undermined. How is this going to change is going to be interesting to follow!

After completing B.Tech from Institute of Chemical Technology (UDCT), I’m currently pursuing MBA in Energy and Infrastructure from School of Petroleum Management, PDPU. I have been working as a co-ordinator of CII-Young Indian for the last one year. My strengths are good analytical ability, proficiency in public speaking, good writing, oratory and communication skills, zest and determination to explore new ideas and working in unison with various groups as a group member as well as a leader.